Karzai Inc: Has Afghanistan's leader turned the country into a family business?

With less than two weeks to go until the national elections, the questions
hanging over the Afghan president and his family are refusing to go away.

President Hamid Karzai is the favourite to win the Afghanistan election. Photo: ASSOCIATED PRESS

By Alex Spillius in Washington and Ben Farmer in Kabul

7:00PM BST 07 Aug 2009

Cabinet ministers in Afghanistan were recently asked to make an "asset declaration". The president, Hamid Karzai, said that he possessed only $10,000 in cash and some jewellery. His claim prompted loud laughter among Westerners in Kabul. But the diplomatic humour masked deep concerns that Afghanistan's leader is turning the country into a family enterprise – with a favoured few being allowed to enrich themselves to the extent that it is alienating the public and helping Taliban insurgents to garner sympathy.

As the country prepares to stage the first Afghan-led presidential election on August 20, the questions hanging over the president and his family have taken on an extra significance.

The combined wealth of the Karzais runs into many millions of dollars, and it has been built mostly since Hamid Karzai took over as president in 2001 after the Taliban's overthrow. That was when his brothers returned from the United States, the country to which his mother and five of his siblings had fled after the Soviet Invasion in 1979.

Now, Mahmoud Karzai, 54, the second oldest of the president's six brothers, is one of the country's richest men, thanks to newly acquired interests in mines, a cement factory, property development, and an "exclusive sales agreement" with Toyota. Until 2001 he was a partner in a string of modest, family-owned restaurants in Baltimore, San Francisco and Boston.

The president's younger brother, Ahmed Wali Karzai, 48, has faced accusations by Western diplomats – which he firmly denies – of being a major force in the heroin trade valued at $3.4 billion by the United Nations last year. He has also built up substantial land holdings, transportation and private security business interests in Kandahar, the country's second city.

Suspicion is rising in Washington that the president himself is quietly amassing a personal fortune on the back of the exploits of his brothers and a network of nephews and friends.

A US source close to the Pentagon acknowledged there was no hard evidence, but he said: "There are people who think he is much more corrupt than he comes across, but he has managed to build walls around himself."

Waheed Omer, a spokesman for Hamid Karzai, told The Daily Telegraph that allegations that the president or his family were involved in corruption were "rubbish".

Other American officials think that the president's biggest sin has been to favour his relatives in the scramble with rivals for lucrative contracts and concessions as the country is rebuilt.

Thirty years of war have left Afghanistan in a pitiful condition, desperately short of roads, power, hospitals and clean water. But, amid the rubble, there have been some winners as donors have pumped £20 billion into the ambitious project to stabilise the country. And few have done better than the president's brothers Mahmoud and Ahmed Wali.

"He [Hamid Karzai] has a medieval way of running things," said one Afghan expert. "He has sold off land and mines and allowed thugs to rule. He doesn't have a basic concept of how to run a remotely modern country."

But after a year of heavily criticising the president – with Hillary Clinton, the US Secretary of State, denouncing Afghanistan as a "narco-state" – and fruitless behind-the-scenes pressure on Mr Karzai to clean up government, the British and Americans have had to resign themselves to the likelihood of a victory for the incumbent.

Mr Karzai is facing a colourful collection of 36 opponents but his financial muscle, patronage and network of support have given his re-election an air of inevitability. The country's only recent poll, carried out by the International Republican Institute in May, put Mr Karzai on 31 per cent, and Dr Abdullah Abdullah, his former foreign minister and closest rival, on 7 per cent.

Last year, Transparency International said Afghanistan was seen as the fifth most corrupt country in the world, up from ninth the previous year. Privately, Western diplomats have little faith that the president will use a second term to tackle corruption or rein in his family. One gloomily concluded: "We are losing this war to corruption."

Washington will certainly be keeping a close watch on Mr Karzai. Mindful that President Barack Obama and the Pentagon are likely to ask for billions more in war funding, Congress is investigating Afghan policy, and is set to report its findings soon.

Daoud Sultanzoy, an independent Afghan MP who has called for an inquiry into the Karzai family businesses, said disillusionment with the political elite and with an election process blighted by allegations of fraud and intimidation runs deep. "Afghans know they could have better government. They are asking why the international community has propped up this kind of leader," he said.

A US Congressional aide said: "Afghans are losing faith in their own government because levels of corruption have reached unprecedented heights. Unless the leadership can find a way of restoring a level of faith there is a sense in some quarters that this mission is lost."

This year, President Obama has ordered 17,000 troop reinforcements, but the coalition allies know that military force alone will not end the growing insurgency. David Miliband, the Foreign Secretary, has advocated peace talks with more moderate Taliban factions to "turn those who can be reconciled to live within the Afghan constitution". In addition, rebuilding the country and tackling unemployment is crucial to luring the public in the south from under the Taliban's wing. As Gen Sir Richard Dannatt, the departing Chief of the General Staff, said in his recent speech: "Afghanistan is a war among the people, about the people and for the people."

Mahmoud Karzai's biggest coup was winning the rights to run the country's only cement factory – a grand prize in a country reduced to rubble – in an auction by the Ministry of Mines in April 2007. The rules required that bidders showed up with millions in cash as proof of their viability, which Mr Sultanzoy claimed was a last-minute demand to benefit the favoured consortium. (Mahmoud Karzai told The Daily Telegraph that he had 34 partners in the concession and that the deal was done "in an open and transparent way". He said the plant was currently losing money and he held less than 10 per cent of the shares.)

An effortless mover between his home in Maryland and Kabul, and between sharp business suits and traditional clothing, the clean-shaven Mr Karzai has benefited from at least $5 million in loans from the Overseas Private Investment Corporation, a US government agency, to finance a property development in Kandahar and blocks of flats in Kabul.

With Toyotas representing more than three quarters of the battered cars on Afghanistan's dusty, potholed roads, the sales agreement is potentially hugely lucrative. Mr Karzai said he set up the deal in the US. Initially, he said, Toyota was "a little bit reluctant to work with someone connected to a politician, but my ability and ideas persuaded them to give me the contract".

He also runs the powerful Afghan Chamber of Commerce, which is considered the gatekeeper to foreign investors, with his business partner, Sher Khan Farnood, the chairman of Kabul Bank, who has a major trading business in Dubai. Zalmay Khalilzad, the former US ambassador to Kabul, has said that businessmen would "come to me and complain that Mahmoud always wanted a share of the new businesses".

Mr Sultanzoy, the independent MP, said: "When someone related to the president is able to build up such wealth in such a short amount of time you can make your own conclusions."

The president's failure to rein in the business activities of his younger brother, Ahmed Wali, has caused both Western and some Afghan officials acute frustration.

Ahmed Wali, 48, is the elected head of the Kandahar provincial council charged with helping develop the province. He is has been accused of providing transport and security to drug runners who move between Iran, Turkey and on to Europe.

A Western expert admitted there is no documented proof of Mr Karzai's involvement in the illicit trade. "He shelters his role very carefully but the US has very good intelligence of the ties between Ahmed Wali Karzai and narcotics," he said.

Describing the allegations as "baseless", Ahmed Wali said: "I have never been in the drug business. No one in the international community has been able to come up with any proof."

Thomas Johnson, a specialist on Afghanistan at the Naval Postgraduate School in California, said: "Ahmed Wali Karzai is the key power broker in Kandahar and formally controls major business enterprises…Having your brother as president doesn't hurt."

Jake Sherman, a former UN official in Afghanistan now based at New York University's Centre on International Cooperation, said Ahmed Wali was among several tribal leaders who were profiting handsomely from private security services. "We are talking very large sums here, hundreds of millions, all paid in cash with very little oversight," he said of the services, which act as guards for convoys, construction crews or logistical teams arriving at forward operating bases.

The younger Karzai also owns trucking firms and is said to have purchased significant parcels of land around Kandahar in anticipation of an injection of foreign aid alongside the arrival of an additional 20,000 additional foreign troops.

He lives in a flamboyant mansion similar to the "poppy palaces" that have sprung up outside Kandahar and Kabul and are allegedly built with drugs money.

"It looks like something in Florida, maybe a beach mansion," one US investigator said of Ahmed Wali's house, "except that it is on the outskirts of Kandahar, near the Canadian army provincial reconstruction team."

The homes are a highly visible symbol of the country's inequalities. Wealth has come to a powerful few in Afghanistan, while conditions remain miserable for the majority still mired in war.